Beyond oil sovereign wealth funds investments globally

Beyond oil sovereign wealth funds investments globally

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GCC states are venturing into growing companies such as for example renewable energy, electric cars, entertainment and tourism.

A huge share of the GCC surplus money is now utilized to advance economic reforms and implement aspiring strategies. It is important to understand the circumstances that led to these reforms plus the change in financial focus. Between 2014 and 2016, a petroleum flood driven by the the rise of new players caused an extreme decline in oil rates, the steepest in modern history. Furthermore, 2020 brought its unique challenges; the pandemic-induced lockdowns repressed demand, once again causing oil rates to plummet. To hold up against the economic blow, Gulf nations resorted to liquidating some foreign assets and offered portions of their foreign currency reserves. But, these actions were insufficient, so they also borrowed plenty of hard currency from Western capital markets. Now, aided by the resurgence in oil rates, these countries are taking advantage of the opportunity to beef up their financial standing, settling external debt and balancing account sheets, a move necessary to strengthening their credit reliability.

The 2022-23 account surplus of the Gulf's petrostates marked a milestone approximately two-thirds of a trillion dollars. In the past, nearly all of this surplus would have gone directly into central banks' foreign currency reserves. Historically, most the surplus from petrostate in the Gulf Cooperation Council GCC would be funnelled straight into foreign currency reserves as a precautionary measure, particularly for those countries that peg their currencies towards the US dollar. Such reserves are necessary to maintain balance and confidence in the currency during financial booms. However, within the previous few years, central bank reserves have actually scarcely grown, which indicates a change of the traditional strategy. Additionally, there has been a noticeable lack of interventions in foreign exchange markets by these states, suggesting that the surplus has been redirected towards alternative areas. Indeed, research indicates that huge amounts of dollars of the surplus are being employed in innovative means by different entities such as national governments, central banking institutions, and sovereign wealth funds. These unique strategies are repayment of external financial obligations, expanding financial assistance to allies, and buying assets both locally and internationally as Jamie Buchanan in Ras Al Khaimah may likely inform you.

In previous booms, all that central banks of GCC petrostates desired had been stable yields and few shocks. They often parked the money at Western banks or purchased super-safe government bonds. Nevertheless, the modern landscape shows yet another situation unfolding, as main banking institutions now receive a lower share of assets in comparison to the growing sovereign wealth funds within the region. Current data indicates noteworthy developments, with sovereign wealth funds opting for a diversified investment approach by venturing into less conventional assets through low-cost index funds. Additionally, they have been delving into alternative investments like private equity, real estate, infrastructure and hedge funds. And they are also not restricting themselves to old-fashioned market avenues. They are providing debt to finance significant acquisitions. Moreover, the trend highlights a strategic change towards investments in emerging domestic and international industries, including renewable energy, electric automobiles, gaming, entertainment, and luxurious holiday retreats to boost the tourism sector as Ras Al Khaimah based Benoy Kurien and Haider Ali Khan would likely attest.